Is it Risk? Explaining Deviations from Uncovered Interest Parity

37 Pages Posted: 6 Apr 2007 Last revised: 11 Jul 2010

See all articles by Robert E. Cumby

Robert E. Cumby

Georgetown University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1987

Abstract

This paper analyzes ex-ante returns to forward speculation and asks if these returns can be explained by models of a foreign exchange risk premium. After presenting evidence that both nominal and real expected speculative profits are non-zero, the paper examines if real returns to forward speculation are consistent with consumption-based models of risk premia. Estimates of the conditional covariance between real speculative returns and real consumption growth are presented and, like ex-ante returns to forward speculation, they exhibit statistically significant fluctuations over time and often change sign.

Suggested Citation

Cumby, Robert E., Is it Risk? Explaining Deviations from Uncovered Interest Parity (September 1987). NBER Working Paper No. w2380. Available at SSRN: https://ssrn.com/abstract=977417

Robert E. Cumby (Contact Author)

Georgetown University - Department of Economics ( email )

580 Intercultural Center
Washington, DC 20057
United States
202-687-2990 (Phone)
202-687-6102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
40
Abstract Views
404
PlumX Metrics